These studies were undertaken to gain insight into the pathogenesis of the condition associated with injection of avian sarcoma virus, known as hemorrhagic cyst disease, and to observe the effects of infection with this virus on immune competence. Hemorrhagic cysts have been shown to become apparent at about 21 days after innoculation of the virus. The cysts appear to develop in lymphoid tissues. Virus infected animals are suppressed in their immune competence, those with cysts more so than those without cysts.